Support and resistance are common terminology among cryptocurrency traders. They are fundamental indicators that can aid investors in determining the strength of a price trend. They may also offer hints on the future price movement of an asset.
However, beginner investors typically have no idea what these terms mean, and some may even mistake the two. Keeping this in mind, we have included all the pertinent information concerning support and resistance levels and how they may assist investors in making more informed trading decisions.
Upon examining a price chart, you may discover a point that a token struggles to reach. The resistance level refers to this price point. You may have also observed a price threshold below which the token will not fall until a negative event of catastrophic proportions occurs. Support level refers to this price point.
Comparable to your movements at home are the price fluctuations of a token. You cannot exceed your ceiling or descend below your floor. You are need to move within the middle area. The resistance level functions as a ceiling, whilst the support level functions as a floor for the token price.
When the price of a token rises, its resistance level acts as a barrier. This resistance is produced by investors seeking to sell and book profits. During such a period, the market is flooded with sell orders. This enhances the availability of tokens. And if the token's supply is greater than its demand, its price may begin to decrease. If investors choose to hold on to their tokens, though, the price may continue its ascent.
When the price of a token begins to decline, however, it will eventually reach the support level. At this time, the market is swamped with a multitude of purchase orders since investors can enter at a significantly reduced price. This increases demand and accelerates the token's value. Alternatively, if investors are gripped by fear, uncertainty, and doubt (FUD), panic selling could ensue, causing the price to fall below the support level.
The price will continue to pursue price points in the same direction if it breaches either the support or resistance level. Therefore, if the price falls below the support level, it will continue to decline and establish a lower support level. Similarly, if the price advances past the barrier, it will continue to rise and produce a higher resistance level.
These stages are simple to recognize. You only need to examine the price chart of a token to determine its highs and lows within a given period. You can search for rallies and choose the point where it halts - your resistance. Find out where the price bottoms out during a market correction - that's your support.
It is a 'strong' level of resistance or support if a price level is frequently tested but not broken.
There are several methods for identifying resistance and support levels, such the Moving Average Indicator and the Trendline Indicator.
The resistance level hinders upward movement and is typically characterized by high supply and low demand. The support level impedes further decline and is characterized by high demand and limited supply.These levels are only indicative; even the strongest supports and resistances can be broken. Consequently, investors should not make trading decisions exclusively based on support and resistance levels.